AUSTIN >> State Sen. Wendy Davis is highlighting a 2006 letter by the office of Attorney General Greg Abbott that says there are no limits to the fees that payday lenders can charge.

Davis said the letter, which was written in a response to an inquiry by former state Sen. Eliot Shapleigh of El Paso, set the stage for an explosion of high-interest lending that critics say exploits the poor.

"Greg Abbott's office gave the green light to predatory lenders to expand their operations across our state," Davis said in a statement Monday. "Greg Abbott has proven that he is an advocate for payday lenders that go after hardworking Texans, even members of our armed services, with predatory loan costs often exceeding 500 percent. It's time for a leader who believes you don't have to buy your way into Texas' future."

REPORTER

Marty Schladen

Davis, a Democrat, and Abbott, a Republican, are likely opponents in the November governor's election.

Abbott's campaign did not respond to a request for comment on Monday. It also has not responded when asked for more than a week whether Abbott believes the Texas payday lending industry needs to be reformed.

The El Paso City Council today will debate whether to enforce local limits on payday and auto-title lenders that in some cases charge annual interest at rates greater than 700 percent.

It and most other major Texas cities have passed ordinances in the face of unwillingness by the Legislature to place stricter limits on the industry.

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Religious and charitable groups also have called for reforms of an industry they say traps poor people in a cycle of debt.

A Times analysis of state data from 2012 showed that in El Paso, the average payday or auto-title loan was for $564 and cost the borrower $387 to hold the money for less than two months. Lenders collected $34 million in fees from the loans.

On Monday, Davis and the Lone Star Project released a Jan. 12, 2006 letter they believe is proof that Abbott is responsible for the rapid expansion of high-interest, short-term lending in Texas.

Shapleigh

The concept of usury -- unconscionably high interest rates -- goes at least as far back as the Old Testament.

It's also part of the Texas Constitution, which says that in the absence of legislation, interest rates in the state are limited to 10 percent a year.

Lenders that are licensed and regulated under Texas law face caps of their own. Commercial loans in most instances can't exceed 18 percent except when the loan is greater than $250,000, when they can't exceed 28 percent.

But the letter by the attorney general that was released Monday said fees associated with payday and title loans have no limits.

The document, written to the Texas consumer watchdog, the Office of the Consumer Credit Commissioner, is not a formal opinion by the attorney general, but an informal analysis, it says.

It attempts to answer Shapleigh's question about whether there is any limit to the fees that "credit-service organizations" such as Cash America or Ace Cash express can charge.

The businesses don't actually lend money; they sign up customers, set up 10-percent, third-party loans and charge fees for the service, the consumer-credit commissioner's website says.

The AG letter says that credit-service organizations weren't created so people could get short-term loans.

"Although the Legislature designed the statutes to provide for CSOs to assist in obtaining mortgage financing for consumers, the plain language of the law does not limit its use only to mortgage-finance transactions," the letter says. "Also, there is no limit in the CSO statutes on the amount of fees that can be charged by a CSO."

The Lone Star Project, a group that supports Davis, said in a statement that the letter provided legal cover for payday and title lenders.

"It is essentially a 'how-to guide' for payday lenders to expand and grow their predatory lending businesses," the statement said.

The Davis campaign linked to a 2006 article in "American Banker" that quoted an Ace Cash Express executive as saying the letter eased the company's fears that there was too much legal risk to lending under the credit-service organization model.

The number of payday lenders in Texas grew from about 300 in 2004 to more than 3,000 in 2011, the Lone Star Project said.

Even though credit-service organizations call their charges fees, the federal Truth in Lending Act requires them to report them as part of the interest on a loan.

The Office of the Consumer Credit Commissioner also could not be reached for comment.

The Lone Star Project also issued a 2012 letter on Monday from 39 states' attorneys general calling on Congress not to pass a bill that would preempt state payday-lending laws and "would establish only minimal consumer protections."

Abbott was not among the attorneys general opposing the measure, which was unsuccessful.

"Attorneys general in many states act aggressively to reign in abuse by predatory lenders like Cash America and ACE, but not Greg Abbott," the Lone Star Project statement said. "In fact, Greg Abbott has been the payday lender industry's facilitator and protector."

Last week, Davis called on Gov. Rick Perry to remove William J. White as chairman of the Texas Finance Commission in response to a story in the El Paso Times. It quoted White as saying borrowers are guilty of bad decisions if they find themselves stuck in short-term loans they can't repay.

The finance commission oversees the Office of the Consumer Credit Commissioner, the consumer watchdog. But White also is vice president of Cash America.

In 2012, White signed a resolution on behalf of the finance commission that called on the Legislature to ban local payday-lending ordinances such as the one the El Paso City Council will debate today. The Texas Municipal League, which supports more regulation of the industry, said it likely was illegal for the commission to pass such a resolution.

As Davis hammered Abbott for not taking a position on whether White should be removed or whether his industry should be reformed, Abbott blasted her for voting to confirm White in 2011.

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